Australian Tax Casebook

This 12th edition of the Australian Tax Casebook consists of more than 600 case summaries covering the most important cases in Australian taxation law.

Set out in alphabetical order, the summaries are presented in a standard format which extracts the essential principles from the cases. Each case summary provides the facts and arguments, the issues, the Tribunal’s or Court’s decision, and significant quotations from the judgment. The use of quotations provides a particularly valuable exposure to key parts of a judgment for students who may find the use of full judgments daunting.

The Casebook contains a topical index, a Case Table, and a table showing the sections of the Income Tax Assessment Act 1997 which correspond to sections of the former law discussed and interpreted in the cases.

The Casebook also serves as an excellent companion to other best-selling CCH publications including Foundations of Taxation Law, Australian Taxation Law and the Australian Master Tax Guide.

With 26 new case summaries added for this edition, the Australian Tax Casebook continues to be a valuable resource for both students and professionals.

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Important Disclaimer

No person should rely on the contents of this publication without firstobtaining advice from a qualified professional person. This publication is soldon the terms and understanding that (1) the authors, consultants and editorsare not responsible for the results of any actions taken on the basis ofinformation in this publication, nor for any error in or omission from thispublication; and (2) the publisher is not engaged in rendering legal,accounting, professional or other advice or services. The publisher, and theauthors, consultants and editors, expressly disclaim all and any liability andresponsibility to any person, whether a purchaser or reader of this publicationor not, in respect of anything, and of the consequences of anything, done oromitted to be done by any such person in reliance, whether wholly orpartially, upon the whole or any part of the contents of this publication.Without limiting the generality of the above, no author, consultant or editorshall have any responsibility for any act or omission of any other author,consultant or editor.

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CCH AUSTRALIA LIMITEDGPO Box 4072, Sydney, NSW 2001

Head Office North RydePhone: (02) 9857 1300 Fax: (02) 9857 1600

Customer SupportPhone: 1 300 300 224 Fax: 1 300 306 224www.cch.com.au

Book Code: 39754A

Australian Tax Casebook

12th Edition

Stephen Barkoczy Cameron Rider John Baring Neil Bellamy

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About CCH Australia Limited

CCH Australia is a leading provider of accurate, authoritative and timelyinformation services for professionals. Our position — ‘‘When you have to beright’’ — is built on the delivery of expert information that is timely, relevant,accurate, comprehensive and easy to use.

We are a member of the Wolters Kluwer group, a leading global informationservices provider with a presence in more than 25 countries in Europe, NorthAmerica and Asia Pacific.

CCH — When you have to be right.

Enquiries are welcome on 1300 300 224.

First edition ...................... November 1993 Eighth edition ........................ January 2007

Second edition ...................... January 1996 Ninth edition ................................. July 2008

Third edition ............................... June 1997 Reprinted ...................................... May 2009

Fourth edition .................. September 1998 Tenth edition ................................ June 2010

Fifth edition ...............................April 2000 Reprinted ............................ December 2011

Sixth edition ................................ June 2002 Eleventh edition .......................... May 2012

Seventh edition ........................... May 2004 Twelfth edition ...................... January 2014

Reprinted .......................... December 2005

ISBN 978-1-925091-30-4

ISSN 1329-122X

2014 CCH Australia Limited

Published by CCH Australia Limited.

All rights reserved. No part of this work covered by copyright may bereproduced or copied in any form or by any means (graphic, electronic ormechanical, including photocopying, recording, recording taping, orinformation retrieval systems) without the written permission of thepublisher.

Printed in Australia by McPherson’s Printing Group

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Preface

The Australian Tax Casebook is a comprehensive reference work that covers theleading cases relating to Australian federal taxation law. It has been designedto be used specifically by taxation students (at both undergraduate andpostgraduate levels) as well as taxation practitioners. This twelfth editioncontains summaries of over 600 Australian and overseas cases dealing withincome tax, fringe benefits tax, goods and services tax and many related areas.

In writing the summaries, we have adopted a standard format which webelieve extracts the essential principles from the cases in the most user-friendly manner. Our approach is: first, to outline the basic facts of a case;second, to present the essential arguments advanced by the parties; third, tostate the fundamental issues arising from the case; and fourth, to set out thedecision of the court or tribunal together with extracts of important and well-known passages from the judgments.

While there can never be any substitute for reading the full text of a case, webelieve that the structured format we have adopted makes the Australian TaxCasebook an easy-to-use and time-saving resource for students andpractitioners who must deal with an ever-expanding and increasinglycomplex body of case law. By adopting our format, we have consciously triedto avoid the traditional approach of many casebooks which extract longpassages from judgments leaving the hard work of identifying the essentialprinciples of a case to the reader. At the same time we realise the importanceof not over-simplifying the summaries and have tried to ensure that weinclude the requisite detail, in particular the most important judicialstatements.

For ease of reference, the cases are set out in alphabetical order. This enablesthe book to be used as a convenient resource in conjunction with standardtaxation law textbooks such as Australian Taxation Law, Foundations of TaxationLaw and the Australian Master Tax Guide.

In relation to this edition, we would like to thank the production, editorial andsales staff at CCH, particularly Marcus Lai, Cindy Chan and Linda Daniele(who made many valuable editorial improvements to the summaries), HelenSantiago, Hani Hazman, Tan Siew Choo and Renee Ho. We would also like toexpress our thanks for the research assistance provided by the followingMonash University law students: Tamara Wilkinson, Michelle Jingying Khorand Jessica Alley. Finally, as always, we would especially like to thank ourfamilies for their encouragement and support.

Stephen Barkoczy

Cameron Rider

John Baring

Neil Bellamy

2014

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About the authors

Principal author

Stephen Barkoczy BA LLB M Tax Law PhD (Monash) is a Professor of Law inthe Faculty of Law at Monash University and a member of the Venture CapitalCommittee of Innovation Australia.

Co-authors

Cameron Rider BA (Hons) LLB (Hons) (Melb) was formerly the Professor ofTaxation Law in the Law School at the University of Melbourne. He is now adirector at Greenwoods & Freehills, and also a Professorial Fellow at the LawSchool.

John Baring BSc LLB (Monash) practised for a number of years at theVictorian Bar. He has also been a lecturer in taxation law at the Faculty ofBusiness and Economics, Monash University, and an adviser to the VictorianState Government and to public sector organisations.

Neil Bellamy BEc LLB (Monash) was formerly a lecturer in taxation law in theFaculty of Business and Economics, Monash University. He previouslyworked for Price Waterhouse and KPMG Peat Marwick and has beeninvolved in private business.

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CCH Acknowledgments

CCH Australia Ltd wishes to thank the following who contributed to andsupported this publication:

Managing Director: Bas Kniphorst

Publisher: Adriana Giometti

Editor in Chief, Tax: Jonathan Mendel

Editors, Tax (Books): Cindy Chan and Linda Daniele

Marketing Manager, Books (Australia): Lauren Ma

Books Co-ordinator: Mele Aloua

Production Team Leader: Helen Santiago

Subeditor: Hani Hazman

Production Editor: Tan Siew Choo

Indexer: Renee Ho

Cover Designer: Mathias Johansson

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Contents

Preface .................................................................................................................page vAbbreviations ................................................................................................page xxvConversion Table ....................................................................................... page xxvii

A

ABB Australia Pty Ltd v FC of T .............................................................................¶1

AGC (Advances) Ltd v FC of T ...............................................................................¶2

AGC (Investments) Ltd v FC of T ...........................................................................¶3

AVCO Financial Services Ltd v FC of T ................................................................¶4

Abbott v Philbin (Inspector of Taxes) ....................................................................¶5

Ahern v DFC of T ......................................................................................................¶6

AID/WATCH Incorporated v FC of T ..................................................................¶7

Air Caledonie International & Ors v Commonwealth ........................................¶8

All States Frozen Foods Pty Ltd v FC of T ............................................................¶9

Allders International Pty Ltd v Commr of State Revenue(Vic) ......................................................................................................................¶10

Allen Allen & Hemsley v DFC of T & Ors ..........................................................¶11

Alliance Holdings Ltd v FC of T ...........................................................................¶12

Allied Mills Industries Pty Ltd v FC of T ............................................................¶13

Allied Pastoral Holdings Pty Ltd v FC of T ........................................................¶14

Allina Pty Ltd v FC of T .........................................................................................¶15

Alloyweld Pty Ltd v FC of T .................................................................................¶16

Allsop v FC of T ......................................................................................................¶17

Amalgamated Zinc (De Bavay’s) Ltd v FC of T .................................................¶18

Anderson v FC of T .................................................................................................¶19

Angliss (W) & Co Pty Ltd, see W Angliss

Anstis; FC of T v ......................................................................................................¶20

Applegate; FC of T v ...............................................................................................¶21

Archer Brothers Pty Ltd (in vol liq) v FC of T ....................................................¶22

Arthur Murray (NSW) Pty Ltd v FC of T ............................................................¶23

Ash; C of T (NSW) v ...............................................................................................¶24

Ashgrove Pty Ltd & Ors v DFC of T ....................................................................¶25

Associated Portland Cement Manufacturers Ltd v Kerr ..................................¶26

Atkinson v FC of T ..................................................................................................¶27

Austin & Anor v Commonwealth of Australia ..................................................¶28

Australasian Catholic Assurance Co Ltd v FC of T ...........................................¶29

Australasian Jam Co Pty Ltd v FC of T ................................................................¶30

Australia and New Zealand Banking Group Limited v FCof T ........................................................................................................................¶31

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Australia and New Zealand Banking Group Ltd v Konza &Anor ......................................................................................................................¶32

Australia and New Zealand Savings Bank Ltd; FC of T v ................................¶33Australian Gas Light Co; FC of T v; Newcastle Gas Co Ltd;

FC of T v ..............................................................................................................¶34Australian Guarantee Corporation Ltd; FC of T v .............................................¶35Australian Machinery & Investment Co Ltd v DFC of T ..................................¶36Australian Music Traders Association; FC of T v ..............................................¶37Australian National Hotels Ltd v FC of T ...........................................................¶38Australian Tape Manufacturers Association Ltd & Ors v

The Commonwealth of Australia ....................................................................¶39Avondale Motors (Parts) Pty Ltd v FC of T ........................................................¶40

B

BHP Billiton Petroleum (Bass Strait) Pty Ltd & Anor v FCof T ........................................................................................................................¶41

BP Australia Ltd v FC of T .....................................................................................¶42Babka v FC of T .......................................................................................................¶43Bairstow, see Edwards (Inspector of Taxes)Baker v Campbell ....................................................................................................¶44Ballarat Brewing Company Limited v FC of T ...................................................¶45Ballesty; FC of T v ...................................................................................................¶46Balnaves v DFC of T ...............................................................................................¶47Bamford & Ors; FC of T v ......................................................................................¶48Barger; R v ................................................................................................................¶49Barratt & Ors v FC of T ..........................................................................................¶50Batagol v FC of T .....................................................................................................¶51Begg v FC of T .........................................................................................................¶52Bellinz Pty Ltd v FC of T ........................................................................................¶53Bennett v FC of T .....................................................................................................¶54Benson’s Hosiery (Holdings) Ltd, see O’Brien (Inspector of

Taxes)Bert Needham Automotive Company Pty Ltd v FC of T .................................¶55Beville; FC of T v .....................................................................................................¶56Bidencope; FC of T v ...............................................................................................¶57Binetter v DFC of T (No 2) .....................................................................................¶58Black; DFC of T v .....................................................................................................¶59Blake; FC of T v .......................................................................................................¶60Blakely; FC of T v ....................................................................................................¶61Blockey v FC of T ....................................................................................................¶62Bloemen (FJ) Pty Ltd, see FJ BloemenBluebottle UK Ltd & Ors v DFC of T & Anor .....................................................¶63Bohemians Club (The) v Acting FC of T ..............................................................¶64Booth v FC of T ........................................................................................................¶65Boulder Perseverance Ltd v FC of T (WA) ..........................................................¶66

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Brady King Pty Ltd v FC of T ................................................................................¶67Brajkovich v FC of T ...............................................................................................¶68Brebner; IR Commrs v ............................................................................................¶69Brent v FC of T .........................................................................................................¶70Brewing Investments Ltd; FC of T v ....................................................................¶71Briggs v DFC of T ....................................................................................................¶72British Insulated & Helsby Cables Ltd v Atherton ............................................¶73Broken Hill Theatres Pty Ltd v FC of T ...............................................................¶74Brown; FC of T v .....................................................................................................¶75Bunting v FC of T ....................................................................................................¶76Burton v FC of T ......................................................................................................¶77

C

CMI Services Pty Ltd v FC of T .............................................................................¶78CSR Ltd; FC of T v ..................................................................................................¶79CTC Resources NL v FC of T ................................................................................¶80Cainero; FC of T v ...................................................................................................¶81Californian Copper Syndicate Ltd v Harris (Surveyor of

Taxes) ...................................................................................................................¶82Californian Oil Products Ltd (in liq) v FC of T ...................................................¶83Calvert (Inspector of Taxes) v Wainwright .........................................................¶84Cam & Sons Ltd; C of T (NSW) v .........................................................................¶85Cameron v DFC of T (Tas) .....................................................................................¶86Cape Flattery Silica Mines Pty Ltd v FC of T ......................................................¶87Carapark Holdings Ltd v FC of T .........................................................................¶88Carberry; FC of T v .................................................................................................¶89Carborundum Realty Pty Ltd v RAIA Archicentre Pty Ltd

& Anor .................................................................................................................¶90Carden’s case, see Executor Trustee & Agency Co of SA LtdCarpentaria Transport Pty Ltd v FC of T ............................................................¶91Case 78 ......................................................................................................................¶92Case 80 ......................................................................................................................¶93Case 98 ......................................................................................................................¶94Case 110 ....................................................................................................................¶95Case B4 ......................................................................................................................¶96Case B11 ....................................................................................................................¶97Case E47 ....................................................................................................................¶98Case P45 ....................................................................................................................¶99Case Q53 .................................................................................................................¶100Case Q68 .................................................................................................................¶101Case R111 ...............................................................................................................¶102Case S19 ..................................................................................................................¶103Case S75 ..................................................................................................................¶104Case U162 ...............................................................................................................¶105Case V160 ...............................................................................................................¶106Case W58 ................................................................................................................¶107

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Case Y4 ...................................................................................................................¶108Case Y13 .................................................................................................................¶109Case Y28 .................................................................................................................¶110Case Z9 ...................................................................................................................¶111Case 29/95 ..............................................................................................................¶112Case 43/95 ..............................................................................................................¶113Case 10/2011 ..........................................................................................................¶114Casimaty v FC of T ...............................................................................................¶115Cecil Bros Pty Ltd v FC of T ................................................................................¶116Century Yuasa Batteries Pty Ltd; FC of T v ......................................................¶117Chamber of Manufactures Insurance Ltd (The) v FC of T ..............................¶118Chamberlain v DFC of T ......................................................................................¶119Chapman v FC of T ...............................................................................................¶120Charles v FC of T ...................................................................................................¶121Charles Moore & Co (WA) Pty Ltd v FC of T ...................................................¶122Chaudhri v FC of T ...............................................................................................¶123Church of the New Faith (The) v Commissioner of Pay-roll

Tax (Vic) .............................................................................................................¶124Citibank Ltd; FC of T & Ors v .............................................................................¶125Citibank Ltd & Ors; FC of T v .............................................................................¶126Citylink Melbourne Ltd; FC of T v .....................................................................¶127Clarke & Kann; DFC of T v ..................................................................................¶128Cliffs International Inc v FC of T ........................................................................¶129Coleambally Irrigation Mutual Co-operative Ltd v FC of T ...........................¶130Coles Myer Finance Ltd v FC of T ......................................................................¶131Collings; FC of T v ................................................................................................¶132Colonial Mutual Life Assurance Society Ltd v FC of T ...................................¶133Commercial and General Acceptance Ltd v FC of T .......................................¶134Commercial Nominees of Australia Ltd; FC of T v .........................................¶135Commercial Union Assurance Company of Australia Ltd v

FC of T ................................................................................................................¶136Commonwealth Aluminium Corporation Ltd; FC of T v ...............................¶137Consolidated Fertilizers Ltd; FC of T v ..............................................................¶138Consolidated Press Holding Ltd & Ors v FC of T & Anor .............................¶139Consolidated Press Holdings Ltd & Anor; FC of T v ......................................¶140Constable v FC of T ...............................................................................................¶141Cooke and Sherden; FC of T v ............................................................................¶142Cooling; FC of T v .................................................................................................¶143Coombes (No 2); FC of T v ..................................................................................¶144Cooper; FC of T v ..................................................................................................¶145Cooper Brookes (Wollongong) Pty Ltd v FC of T ............................................¶146Couch & Anor v FC of T ......................................................................................¶147Coughlan & Ors v FC of T ...................................................................................¶148Cranstoun v FC of T ..............................................................................................¶149Cridland v FC of T ................................................................................................¶150Crommelin v DFC of T .........................................................................................¶151

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Cronulla-Sutherland Leagues Club Ltd v FC of T ...........................................¶152Crow v FC of T ......................................................................................................¶153Curran v FC of T ...................................................................................................¶154Cyclone Scaffolding Pty Ltd; FC of T v ..............................................................¶155

D

D & W Murray Ltd; C of T (WA) v .....................................................................¶156Dalco; FC of T v .....................................................................................................¶157David Jones Finance and Investments Pty Ltd & Anor v FC

of T ......................................................................................................................¶158David Securities Pty Ltd & Ors v Commonwealth Bank of

Australia ............................................................................................................¶159Davis & Anor v FC of T ........................................................................................¶160Dawson, see Furniss (Inspector of Taxes)Day; FC of T v ........................................................................................................¶161De Beers Consolidated Mines Ltd v Howe .......................................................¶162De Luxe Red and Yellow Cabs Co-operative (Trading)

Society Ltd & Ors; FC of T v ...........................................................................¶163De Vonk v DFC of T .............................................................................................¶164Dean & Anor v FC of T .........................................................................................¶165Deane v FC of T; Croker v FC of T .....................................................................¶166Dickenson v FC of T ..............................................................................................¶167Dingwall v FC of T ................................................................................................¶168Dixon; FC of T v ....................................................................................................¶169Dixon (Peter) & Son Ltd, see Lomax (HM Inspector of

Taxes)Dooland, see Moorhouse (Inspector of Taxes)Donovan v DFC of T .............................................................................................¶170Dormer v FC of T ..................................................................................................¶171Drummond v FC of T ...........................................................................................¶172Ducker (Inspector of Taxes) v Rees Roturbo Development

Syndicate Ltd ....................................................................................................¶173Dunn; FC of T v .....................................................................................................¶174Dwight v FC of T ...................................................................................................¶175Dymond, Re ...........................................................................................................¶176

E

EA Marr and Sons (Sales) Ltd; FC of T v ...........................................................¶177ECC Southbank Pty Ltd as Trustee for Nest Southbank

Unit Trust & Anor v FC of T ...........................................................................¶178East Finchley Pty Ltd v FC of T ...........................................................................¶179Eastern Nitrogen Ltd v FC of T ...........................................................................¶180Economedes v FC of T ..........................................................................................¶181Edelsten v Wilcox & Anor ...................................................................................¶182Edwards; FC of T v ...............................................................................................¶183Edwards (Inspector of Taxes) v Bairstow & Anor ...........................................¶184

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Efstathakis; FC of T v ............................................................................................¶185Egerton-Warburton & Ors v DFC of T ...............................................................¶186Eisner v FC of T .....................................................................................................¶187Elmslie & Ors v FC of T ........................................................................................¶188Emu Bay Railway Co Ltd v FC of T ...................................................................¶189Energy Resources of Australia Ltd; FC of T v ...................................................¶190Equitable Life and General Insurance Co Ltd; FC of T v ................................¶191Esquire Nominees Ltd (as Trustee of Manolas Trust) v FC

of T ......................................................................................................................¶192Essenbourne Pty Ltd v FC of T ...........................................................................¶193Esso Australia Resources Ltd v FC of T .............................................................¶194Europa Oil (NZ) Ltd (No 1); Commr of IR (NZ) v ...........................................¶195Europa Oil (NZ) Ltd (No 2) v Commr of IR (NZ) ............................................¶196Evans v FC of T (study leave grant) ...................................................................¶197Evans v FC of T (gambling wins) .......................................................................¶198Evans Medical Supplies Ltd, see Moriarty (Inspector of

Taxes)Everett; FC of T v ..................................................................................................¶199Executor Trustee and Agency Co of South Australia Ltd

(The); C of T (SA) v (Carden’s case) ..............................................................¶200

F

FJ Bloemen Pty Ltd v FC of T ..............................................................................¶201Faichney; FC of T v ...............................................................................................¶202Fairfax v FC of T ....................................................................................................¶203Fairfax (John) and Sons Pty Ltd, see John FairfaxFairway Estates Pty Ltd v FC of T ......................................................................¶204Farnsworth v FC of T ............................................................................................¶205Federal Coke Co Pty Ltd v FC of T .....................................................................¶206Federal Wharf Co Ltd v DFC of T ......................................................................¶207Fenwick (James) & Co Ltd, see James FenwickFerguson v FC of T ................................................................................................¶208Finn; FC of T v .......................................................................................................¶209First Provincial Building Society Limited v FC of T ........................................¶210Firstenberg; FC of T v ...........................................................................................¶211Firth; FC of T v .......................................................................................................¶212Fitzgerald v DFC of T ...........................................................................................¶213Fletcher & Ors v FC of T ......................................................................................¶214Flood (James) Pty Ltd, see James FloodFoley (Lady) v Fletcher .........................................................................................¶215Forsyth; FC of T v ..................................................................................................¶216Forsyth; R v ............................................................................................................¶217Fortescue Metals Group Limited & Ors v The

Commonwealth ................................................................................................¶218Foxwood (Tolga) Pty Ltd; FC of T v ...................................................................¶219Freeman & Ors v FC of T .....................................................................................¶220

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French; FC of T v ...................................................................................................¶221Fuller (WE) Pty Ltd, see WE FullerFullerton v FC of T ................................................................................................¶222Furniss (Inspector of Taxes) v Dawson ..............................................................¶223Futuris Corporation Ltd; FC of T v (2008) .........................................................¶224Futuris Corporation Ltd; FC of T v (2010; 2012) ...............................................¶225

G

GE Crane Sales Pty Ltd v FC of T .......................................................................¶226GKN Kwikform Services Pty Ltd; FC of T v .....................................................¶227GP International Pipecoaters Pty Ltd v FC of T ...............................................¶228GRE Insurance Ltd v FC of T; Unitraders Investments Pty

Ltd v FC of T .....................................................................................................¶229Galland; FC of T v .................................................................................................¶230Garrett v FC of T ...................................................................................................¶231Gartside v IR Commrs ..........................................................................................¶232Gasparin v FC of T ................................................................................................¶233Gauci & Ors v FC of T ..........................................................................................¶234George; DFC of T ...................................................................................................¶235Gibb v FC of T ........................................................................................................¶236Giris Pty Ltd v FC of T .........................................................................................¶237Glenboig Union Fireclay Co Ltd (The) v IR Commrs ......................................¶238Glenville Pastoral Co Pty Ltd (in liq) v FC of T ................................................¶239Goodman Fielder Wattie Ltd v FC of T .............................................................¶240Government of India, Ministry of Finance (Revenue

Division) v Taylor & Anor ..............................................................................¶241Granby Pty Ltd v FC of T .....................................................................................¶242Grant & Ors; FC of T v .........................................................................................¶243Gray & Anor v FC of T .........................................................................................¶244Grealy v FC of T ....................................................................................................¶245Gregrhon Investments Pty Ltd & Ors; FC of T v ..............................................¶246Gulland; FC of T v; Watson v FC of T; Pincus v FC of T .................................¶247

H

HR Sinclair & Son Pty Ltd v FC of T ..................................................................¶248Ha & Anor v State of New South Wales & Ors; Walter

Hammond & Associates Pty Ltd v State of New SouthWales & Ors ......................................................................................................¶249

Hadlee & Sydney Bridge Nominees Ltd v Commr of IR(NZ) ....................................................................................................................¶250

Hallstroms Pty Ltd v FC of T ..............................................................................¶251Handley v FC of T .................................................................................................¶252Happ; FC of T v .....................................................................................................¶253Harding v FC of T .................................................................................................¶254Harmer & Ors v FC of T .......................................................................................¶255Harris; FC of T v ....................................................................................................¶256

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Harrowell v FC of T ..............................................................................................¶257Hart & Anor; FC of T v .........................................................................................¶258Hatchett; FC of T v ................................................................................................¶259Hayes v FC of T .....................................................................................................¶260Heavy Minerals Pty Ltd v FC of T ......................................................................¶261Henderson v FC of T ............................................................................................¶262Henry Jones (IXL) Ltd v FC of T .........................................................................¶263Hepples v FC of T .................................................................................................¶264Herald and Weekly Times Ltd (The) v FC of T ................................................¶265Higgs (Inspector of Taxes) v Olivier ..................................................................¶266Highfield; FC of T v ..............................................................................................¶267Hillsdon Watts Ltd; C of T (NSW) v ..................................................................¶268Hoare Trustees v Gardner (Inspector of Taxes); Hart

(Inspector of Taxes) v Briscoe & Ors .............................................................¶269Hobbs & Anor v FC of T ......................................................................................¶270Hochstrasser (Inspector of Taxes) v Mayes .......................................................¶271Hoffnung (S) & Company Ltd, see S HoffnungHolmes; FC of T v .................................................................................................¶272Homewood; DFC of T v .......................................................................................¶273Hunter Douglas Ltd; FC of T v ...........................................................................¶274Hyteco Hiring Pty Ltd; FC of T v ........................................................................¶275

I

Ilbery; FC of T v .....................................................................................................¶276Imperial Chemical Industries of Australia and New

Zealand Ltd v FC of T ......................................................................................¶277Indooroopilly Children Services (Qld) Pty Ltd; FC of T v ..............................¶278Interchase Corporation Ltd v ACN 010 087 573 Pty Ltd &

Ors ......................................................................................................................¶279International Nickel Australia Ltd v FC of T ....................................................¶280Investment and Merchant Finance Corporation Ltd v FC of

T ..........................................................................................................................¶281

J

J & G Knowles & Associates Pty Ltd v FC of T ................................................¶282J Rowe & Son Pty Ltd v FC of T ..........................................................................¶283Jackson; FC of T v ..................................................................................................¶284James Fenwick & Co Ltd v FC of T ....................................................................¶285James Flood Pty Ltd; FC of T v ...........................................................................¶286Jamieson v Commr for IR ....................................................................................¶287Jamieson v Commr of IR (NZ) ............................................................................¶288Janmor Nominees Pty Ltd; FC of T v .................................................................¶289Jarrold (Inspector of Taxes) v Boustead .............................................................¶290Jayatilake v FC of T ...............................................................................................¶291Jefferies; FC of T v .................................................................................................¶292Jenkins; FC of T v ..................................................................................................¶293

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Joachim v FC of T ..................................................................................................¶294John v FC of T ........................................................................................................¶295John Fairfax and Sons Pty Ltd v FC of T ...........................................................¶296Jolley v FC of T ......................................................................................................¶297Jones; FC of T v ......................................................................................................¶298Jones v Leeming ....................................................................................................¶299Just Jeans Pty Ltd; FC of T v ................................................................................¶300

K

Keighery (WP) Pty Ltd, see WP KeigheryKeily v FC of T .......................................................................................................¶301Kelly v FC of T .......................................................................................................¶302Kidston Goldmines Ltd v FC of T .......................................................................¶303Kingston Thoroughbred Horse Stud and ATO, Re .........................................¶304Kirk; C of T v ..........................................................................................................¶305Koitaki Para Rubber Estates Ltd v FC of T ........................................................¶306Kosciusko Thredbo Pty Ltd v FC of T ................................................................¶307Krakos Investments Pty Ltd; FC of T v ..............................................................¶308Kratzmann v FC of T ............................................................................................¶309Kumagai Gumi Co Ltd v FC of T ........................................................................¶310Kwikspan Purlin System Pty Ltd v FC of T ......................................................¶311

L

La Rosa; FC of T v .................................................................................................¶312Lamesa Holdings BV; FC of T v ..........................................................................¶313Lau; FC of T v ........................................................................................................¶314Law Shipping Co Ltd (The) v IR Commrs ........................................................¶315Lawford; C of T (NSW) v .....................................................................................¶316Leary v FC of T ......................................................................................................¶317Lees & Leech Pty Ltd v FC of T ...........................................................................¶318Levene v IR Commrs ............................................................................................¶319Lewis Berger & Sons (Australia) Ltd; FC of T v ...............................................¶320Liedig v FC of T .....................................................................................................¶321Liftronic Pty Ltd v FC of T ...................................................................................¶322Lighthouse Philatelics Pty Ltd v FC of T ...........................................................¶323Lilyvale Hotel Pty Ltd v FC of T .........................................................................¶324Lindsay v FC of T ..................................................................................................¶325Lindsay & Ors v IR Commrs ...............................................................................¶326Lodge v FC of T .....................................................................................................¶327Lomax (HM Inspector of Taxes) v Peter Dixon and Son Ltd ..........................¶328London Australia Investment Co Ltd v FC of T ...............................................¶329Lopez v DFC of T ..................................................................................................¶330Loxton v FC of T ....................................................................................................¶331Lunney v FC of T; Hayley v FC of T ..................................................................¶332Luton v Lessels & Anor ........................................................................................¶333Lysaght; IR Commrs v ..........................................................................................¶334

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M

M or MD Steinberg, see SteinbergMcCauley v FC of T ..............................................................................................¶335McClelland v FC of T ............................................................................................¶336MacCormick v FC of T; Camad Investments Pty Ltd & Ors

v FC of T ............................................................................................................¶337McCurry & Anor v FC of T ..................................................................................¶338McDonald; FC of T v (allowable deductions) ...................................................¶339McDonald v FC of T (legally binding and enforceable

contract) .............................................................................................................¶340MacFarlane v FC of T ...........................................................................................¶341McIntosh v FC of T ...............................................................................................¶342McLaurin v FC of T ...............................................................................................¶343McNeil; FC of T v ..................................................................................................¶344McPhail; FC of T v .................................................................................................¶345Macquarie Finance Ltd v FC of T .......................................................................¶346Madad Pty Ltd v FC of T .....................................................................................¶347Maddalena; FC of T v ...........................................................................................¶348Madigan v FC of T ................................................................................................¶349Magna Alloys & Research Pty Ltd v FC of T ....................................................¶350Malayan Shipping Co Ltd v FC of T ..................................................................¶351Mansfield v FC of T ..............................................................................................¶352Marana Holdings Pty Ltd & Anor v FC of T .....................................................¶353Marr (EA) and Sons (Sales) Ltd, see EA MarrMarshall and Brougham Pty Ltd; FC of T v ......................................................¶354Martin v FC of T (gambling wins) ......................................................................¶355Martin v FC of T (childminding expenses) .......................................................¶356Matthews v The Chicory Marketing Board (Vic) .............................................¶357Mazuran, Re; Ex parte DFC of T .........................................................................¶358Memorex Pty Ltd v FC of T .................................................................................¶359Mercantile Mutual Insurance (Workers Compensation) Ltd

& Anor; FC of T v .............................................................................................¶360Meredith v FC of T & Ors ....................................................................................¶361Merv Brown Pty Ltd; FC of T v ...........................................................................¶362Metal Manufacturers Ltd; FC of T v ...................................................................¶363MI Roberts, see Roberts (MI)Michell v FC of T ...................................................................................................¶364Midland Railway Company of Western Australia Ltd

(The); FC of T v .................................................................................................¶365Miller; FC of T v ....................................................................................................¶366Mitchum; FC of T v ...............................................................................................¶367Mitsubishi Motors New Zealand Ltd; Commr of IR (NZ) v ..........................¶368Moana Sand Pty Ltd v FC of T ............................................................................¶369Moneymen Pty Ltd v FC of T ..............................................................................¶370

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Montgomery; FC of T v ........................................................................................¶371Moore v Griffiths (Inspector of Taxes) ...............................................................¶372Moorebank Pty Ltd; DFC of T v ..........................................................................¶373Moorhouse (Inspector of Taxes) v Dooland ......................................................¶374Moriarty (Inspector of Taxes) v Evans Medical Supplies Ltd ........................¶375Morris v FC of T ....................................................................................................¶376Mostyn; DFC of T v ...............................................................................................¶377Mount Isa Mines Ltd v FC of T ...........................................................................¶378Mullens & Ors v FC of T ......................................................................................¶379Munro; FC of T v ...................................................................................................¶380Murray (D & W) Ltd, see D & W MurrayMurry; FC of T v ....................................................................................................¶381Mutual Acceptance Ltd v FC of T .......................................................................¶382Mutual Pools and Staff Pty Ltd & Anor v FC of T ...........................................¶383Myer Emporium Ltd (The); FC of T v ................................................................¶384

N

NV Philips’ Gloeilampenfabrieken; Commr of IR (NZ) v ..............................¶385Nathan v FC of T ...................................................................................................¶386National Australia Bank Ltd v FC of T (fringe benefits) .................................¶387National Australia Bank Ltd v FC of T (defence force

housing loans) ...................................................................................................¶388National Bank of Australasia Ltd (The) v FC of T ............................................¶389Nchanga Consolidated Copper Mines Ltd; C of T v .......................................¶390Neale v Atlas Products (Vic) Pty Ltd .................................................................¶391Nevill (W) & Co Ltd, see W NevillNew Zealand Flax Investments Ltd v FC of T ..................................................¶392Newsom v Robertson (Inspector of Taxes) .......................................................¶393Newton & Ors v FC of T ......................................................................................¶394Nilsen Development Laboratories Pty Ltd & Ors v FC of T ...........................¶395Norman v FC of T .................................................................................................¶396North Australian Pastoral Co Ltd v FC of T .....................................................¶397Northern Suburbs General Cemetery Reserve Trust v The

Commonwealth of Australia ..........................................................................¶398Northumberland Development Co Pty Ltd; FC of T v ....................................¶399

O

O’Brien (Inspector of Taxes) v Benson’s Hosiery (Holdings)Ltd .......................................................................................................................¶400

Odeon Associated Theatres Ltd v Jones (Inspector of Taxes) ........................¶401Ogilvy & Mather Pty Ltd v FC of T ....................................................................¶402Olivier, see Higgs (Inspector of Taxes)O’Reilly & Ors v Commrs of the State Bank of Victoria &

Ors ......................................................................................................................¶403Orica Ltd (formerly ICI Australia Ltd); FC of T v ............................................¶404Osborne; FC of T v ................................................................................................¶405

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P

P & N Beverages Australia Pty Ltd v FC of T ...................................................¶406PBL Marketing Pty Ltd v FC of T .......................................................................¶407Packer & Ors v DFC of T ......................................................................................¶408Pape v FC of T & Ors ............................................................................................¶409Parke Davis & Co v FC of T .................................................................................¶410Parton v Milk Board (Vic) ....................................................................................¶411Partridge v Mallandaine (Surveyor of Taxes) ...................................................¶412Pastoral & Development Pty Ltd v FC of T .......................................................¶413Patcorp Investments Ltd & Ors v FC of T .........................................................¶414Payne v FC of T (frequent flyer) .........................................................................¶415Payne; FC of T v (work travel expenses) ...........................................................¶416Peabody; FC of T v ................................................................................................¶417Peate v FC of T .......................................................................................................¶418Peyton v FC of T ....................................................................................................¶419Philip Morris Ltd v FC of T .................................................................................¶420Philips’ (NV) Gloeilampenfabrieken, see NV Philips’

GloeilampenfabriekenPhillips; C of T (Vic) v (payments after retirement) .........................................¶421Phillips; FC of T v (service entity) .......................................................................¶422Placer Pacific Management Pty Ltd v FC of T ..................................................¶423Point v FC of T .......................................................................................................¶424Poole v FC of T; Dight v FC of T .........................................................................¶425Powell v Evreniades & Ors ..................................................................................¶426Pratt Holdings Pty Ltd & Anor v FC of T ..........................................................¶427Prince v FC of T .....................................................................................................¶428Pritchard (Inspector of Taxes) v Arundale ........................................................¶429Provan v HCL Real Estate Ltd & Ors .................................................................¶430Punjab Co-operative Bank Ltd, Amritsar v Income Tax

Commissioner, Lahore ....................................................................................¶431Purcell; DFC of T v ................................................................................................¶432

Q

Qantas Airways Ltd; FC of T ...............................................................................¶433Quarries Ltd v FC of T ..........................................................................................¶434Queensland Meat Export Co Ltd v DFC of T ....................................................¶435

R

RAC Insurance Pty Ltd v FC of T .......................................................................¶436RACV Insurance Pty Ltd v FC of T ....................................................................¶437RCI Pty Ltd v FC of T ...........................................................................................¶438Radilo Enterprises Pty Ltd; FC of T v ................................................................¶439Radnor Pty Ltd; FC of T v ....................................................................................¶440Raftland Pty Ltd as trustee of the Raftland Trust v FC of T ...........................¶441Ramsay; IRC v .......................................................................................................¶442Raymor Contractors Pty Ltd v FC of T ..............................................................¶443

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Raymor (NSW) Pty Ltd; FC of T v ......................................................................¶444Reckitt & Colman Pty Ltd v FC of T ...................................................................¶445Reliance Carpet Co Pty Ltd; FC of T v ...............................................................¶446Resch v FC of T ......................................................................................................¶447Reseck v FC of T ....................................................................................................¶448Reynolds v Commr of State Taxation (WA) ......................................................¶449Rhodesia Metals Ltd (in liq) v Taxes Commr ...................................................¶450Rhodesia Railways Ltd v Collector of Income Tax,

Bechuanaland Protectorate .............................................................................¶451Richard Walter Pty Ltd; DFC of T v ...................................................................¶452Richardson v FC of T ............................................................................................¶453Riches v Westminster Bank Ltd ..........................................................................¶454Risby Forest Industries Pty Ltd & Anor v FC of T ...........................................¶455Riverside Road Lodge Pty Ltd (in liq); FC of T v .............................................¶456Roads and Traffic Authority of NSW v FC of T ...............................................¶457Robert v Collier’s Bulk Liquid Transport Pty Ltd ............................................¶458Robert Coldstream Partnership v FC of T .........................................................¶459Roberts; FC of T v; FC of T v Smith ....................................................................¶460Roberts (MI); FC of T v .........................................................................................¶461Rolls-Royce Ltd v Jeffrey (Inspector of Taxes) ..................................................¶462Ronpibon Tin NL v FC of T; Tongkah Compound NL v FC

of T ......................................................................................................................¶463Rose v FC of T ........................................................................................................¶464Rotherwood Pty Ltd v FC of T ............................................................................¶465Rowe; FC of T v .....................................................................................................¶466Rowe (J) & Son Pty Ltd, see J RoweRoy Morgan Research Pty Ltd v FC of T & Anor .............................................¶467Royal Automobile Club of Victoria v FC of T ...................................................¶468Ruhamah Property Co Ltd v FC of T .................................................................¶469Ryan; FC of T v ......................................................................................................¶470

S

S Hoffnung & Company Ltd; FC of T v .............................................................¶471SP Investments Pty Ltd (as trustee of the LM Brennan

Trust) v FC of T; Perron Investments Pty Ltd v FC of T .............................¶472Sacca v Adam & Anor ..........................................................................................¶473Saga Holidays Limited v FC of T ........................................................................¶474St George Bank Ltd v FC of T ..............................................................................¶475St Hubert’s Island Pty Ltd; FC of T v .................................................................¶476St Marys Rugby League Club Ltd v FC of T .....................................................¶477Sara Lee Household & Body Care (Aust) Pty Ltd; FC of T v ..........................¶478Saunig; DFC of T ...................................................................................................¶479Scott v C of T (NSW) (compensation payment) ...............................................¶480Scott v FC of T (gift from client) ..........................................................................¶481Scottish Australian Mining Company Ltd v FC of T .......................................¶482Scottish & Newcastle Breweries Ltd; IR Commrs v .........................................¶483

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Scully; FC of T v ....................................................................................................¶484Selleck v FC of T ....................................................................................................¶485Seymour v Reed ....................................................................................................¶486Shaw v Director of Housing & Anor (No 2) ......................................................¶487Sheehan; DFC of T v .............................................................................................¶488Sheil v FC of T ........................................................................................................¶489Shepherd v FC of T ...............................................................................................¶490Sherritt Gordon Mines Limited; FC of T v ........................................................¶491Shields v FC of T ...................................................................................................¶492Sinclair (HR) & Son Pty Ltd, see HR SinclairSingle v FC of T .....................................................................................................¶493Skase v FC of T ......................................................................................................¶494Slater Holdings Ltd (No 2); FC of T v ................................................................¶495Slaven; FC of T v ...................................................................................................¶496Slutzkin & Ors v FC of T ......................................................................................¶497Smith; FC of T v (disability insurance) ..............................................................¶498Smith v FC of T (study payments) ......................................................................¶499Sneddon v FC of T ................................................................................................¶500Snowden & Willson Pty Ltd; FC of T v ..............................................................¶501Softwood Pulp and Paper Ltd v FC of T ...........................................................¶502Somers Bay Investment Pty Ltd v FC of T ........................................................¶503Soong v DFC of T ..................................................................................................¶504South Australia & Anor v Commonwealth & Anor

(Commonwealth’s income tax powers) ........................................................¶505South Australia & Anor v Commonwealth & Anor (State

Superannuation Fund) .....................................................................................¶506South Australian Battery Makers Pty Ltd; FC of T v .......................................¶507South Steyne Hotel Pty Ltd & Ors v FC of T .....................................................¶508Southern v Borax Consolidated Limited ...........................................................¶509Southern Farmers Group Ltd v DFC of T & Ors ..............................................¶510Spedley Securities Ltd; FC of T v ........................................................................¶511Spotless Services Ltd & Anor; FC of T v ............................................................¶512Spriggs v FC of T; Riddell v FC of T ...................................................................¶513Squatting Investment Company Limited; FC of T v ........................................¶514Stanton v FC of T ...................................................................................................¶515Stapleton v FC of T ................................................................................................¶516Star City Pty Limited; FC of T v ..........................................................................¶517State Bank of New South Wales; DFC of T v ....................................................¶518State Chamber of Commerce and Industry & Ors v

Commonwealth of Australia ..........................................................................¶519State of Queensland v Commonwealth of Australia .......................................¶520Statham & Anor v FC of T ...................................................................................¶521Steele v DFC of T ...................................................................................................¶522Steinberg (M) v FC of T; Trustee of Judith Steinberg No 2

Trust v FC of T; Steinberg (MD) v FC of T ...................................................¶523

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Stephenson (Inspector of Taxes) v Barclay’s Bank Trust CoLtd .......................................................................................................................¶524

Stergis & Ors v FC of T & Anor ..........................................................................¶525Sterling Guardian Pty Ltd v FC of T ..................................................................¶526Stokes; FC of T v ....................................................................................................¶527Stone; FC of T v .....................................................................................................¶528Studdert; FC of T v ................................................................................................¶529Studebaker Corporation of Australasia Ltd v C of T (NSW) ..........................¶530Sun Newspapers Ltd v FC of T ...........................................................................¶531Sunchen Pty Ltd v FC of T & Anor .....................................................................¶532Suttons Motors (Chullora) Wholesale Pty Ltd; FC of T v ...............................¶533Swinford v FC of T ................................................................................................¶534Sydney Refractive Surgery Centre Pty Ltd; FC of T v .....................................¶535Sydney Water Board Employees’ Credit Union Ltd v FC of

T ..........................................................................................................................¶536Szajntop v FC of T .................................................................................................¶537

T

TNT Skypak International (Aust) Pty Ltd v FC of T ........................................¶538Taplin v Pickford ...................................................................................................¶539Taylor & Anor v FC of T ......................................................................................¶540Temelli v FC of T ...................................................................................................¶541Tennant v Smith (Surveyor of Taxes) .................................................................¶542Terranora Lakes Country Club Ltd v FC of T ...................................................¶543Terrule Pty Ltd v DFC of T; Manners v DFC of T ............................................¶544Thiel v FC of T .......................................................................................................¶545Thomas v FC of T ..................................................................................................¶546Thomas (W) & Co Pty Ltd, see W ThomasThorpe Nominees Pty Ltd v FC of T ..................................................................¶547Tikva Investments Pty Ltd v FC of T .................................................................¶548Tinkler v FC of T ...................................................................................................¶549Tooheys Ltd v C of T (NSW); Sydney Ferries Ltd v C of T

(NSW) .................................................................................................................¶550Total Holdings (Australia) Pty Ltd; FC of T v ..................................................¶551Totledge Pty Ltd; FC of T v .................................................................................¶552Toyama Pty Ltd v Landmark Building Development Pty

Ltd .......................................................................................................................¶553Trail Bros Steel & Plastics Pty Ltd; FC of T .......................................................¶554Trautwein v FC of T ..............................................................................................¶555Travelex Ltd v FC of T ..........................................................................................¶556Travelodge Papua New Guinea Ltd v Chief Collector of

Taxes ...................................................................................................................¶557Trent Investments Pty Ltd v FC of T ..................................................................¶558Truesdale v FC of T ...............................................................................................¶559Tuite & Anor v Exelby & Ors ..............................................................................¶560Tupicoff v FC of T .................................................................................................¶561

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U

Unilever Australia Securities Ltd; FC of T v .....................................................¶562Union Fidelity Trustee Co of Australia Ltd & Anor v FC of

T ..........................................................................................................................¶563Unit Construction Co Ltd v Bullock (Inspector of Taxes) ...............................¶564United Aircraft Corporation; FC of T v .............................................................¶565Ure v FC of T ..........................................................................................................¶566Uther; FC of T v .....................................................................................................¶567

V

Vabu Pty Ltd v FC of T .........................................................................................¶568Vallambrosa Rubber Co Ltd v Farmer (Surveyor of Taxes) ...........................¶569Van den Berghs Ltd v Clark (Inspector of Taxes) ............................................¶570Vegners v FC of T ..................................................................................................¶571Vestey v IR Commrs .............................................................................................¶572Victorian Women Lawyers’ Association Inc v FC of T ....................................¶573Vidler v FC of T .....................................................................................................¶574Vincent v FC of T ...................................................................................................¶575Virgin Blue Airlines Pty Ltd v FC of T ...............................................................¶576Visy Industries USA Pty Ltd; FC of T ................................................................¶577Vogt; FC of T v .......................................................................................................¶578

W

W Angliss & Co Pty Ltd; FC of T v .....................................................................¶579W Nevill & Co Ltd v FC of T ...............................................................................¶580W Thomas & Co Pty Ltd v FC of T .....................................................................¶581WD & HO Wills (Australia) Pty Ltd v FC of T .................................................¶582WE Fuller Pty Ltd; FC of T v ...............................................................................¶583WP Keighery Pty Ltd v FC of T ..........................................................................¶584WR Carpenter Holdings Pty Ltd v FC of T; WR Carpenter

Australia Pty Ltd v FC of T .............................................................................¶585WR Moran Pty Ltd v DFC of T (NSW) & Ors ...................................................¶586Wade; FC of T v .....................................................................................................¶587Wainwright; see Calvert (Inspector of Taxes)Walker; FC of T v ..................................................................................................¶588Walker & Ors v FC of T ........................................................................................¶589Walsh Bay Developments Pty Ltd & Anor v FC of T ......................................¶590Walstern Pty Ltd v FC of T ..................................................................................¶591Walter (Richard) Pty Ltd, see Richard WalterWangaratta Woollen Mills Ltd v FC of T ..........................................................¶592Ward; Commr of IR (NZ) v .................................................................................¶593Warner Music Australia Pty Ltd v FC of T .......................................................¶594Wattie & Anor; Commr of IR v ...........................................................................¶595Wells; FC of T v .....................................................................................................¶596Western Suburbs Cinemas Ltd; FC of T v .........................................................¶597Westfield Ltd v FC of T ........................................................................................¶598

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Westley Nominees Pty Ltd & Anor v Coles SupermarketsAustralia Pty Ltd & Anor ................................................................................¶599

Westminster (Duke of); IR Commrs v ................................................................¶600Westpac Banking Corporation v FC of T ...........................................................¶601Westraders Pty Ltd; FC of T v .............................................................................¶602Wharf Properties Ltd v Commr of IR (Hong Kong) ........................................¶603Whitaker v FC of T ................................................................................................¶604Whitfords Beach Pty Ltd; FC of T v ....................................................................¶605Whiting; FC of T v .................................................................................................¶606Wiener; FC of T v ..................................................................................................¶607Wilkinson; FC of T v .............................................................................................¶608Williams; FC of T v ...............................................................................................¶609Wills (WD & HO) (Australia), see WD & HO WillsWoite; FC of T v .....................................................................................................¶610Woolcombers (WA) Pty Ltd; FC of T v ..............................................................¶611Word Investments Limited; FC of T v ...............................................................¶612World Book (Australia) Pty Ltd v FC of T .........................................................¶613

X

XCO Pty Ltd v FC of T .........................................................................................¶614

Y

Yeung & Anor v FC of T ......................................................................................¶615

Z

Zarzycki; DFC of T v ............................................................................................¶616Zeta Force Pty Ltd v FC of T ................................................................................¶617Zim Properties Ltd v Procter (Inspector of Taxes) ...........................................¶618Zobory v FC of T ...................................................................................................¶619

Indexes

Case Table ................................................................................................... page 1,403Index ............................................................................................................ page 1,425

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AbbreviationsAAT ................................ Administrative Appeals Tribunal

AC ................................... Law Reports (Appeal Cases), from 1891

AITR ............................... Australian and New Zealand Income Tax Reports

ALJR ............................... Australian Law Journal Reports

All ER ............................. All England Law Reports, from 1936

All ER Rep ..................... All England Law Reports Reprint, 1558–1935

ALR ................................ Australian Law Reports

App Cas ......................... Appeal Cases

Art ................................... Article

ATC ................................ Australian Tax Cases (CCH)

ATD ................................ Australian Tax Decisions, 1930–1969

ATL ................................. Australian Taxation Law

ATR ................................ Australian Tax Reports

Bd of Rev ....................... Board of Review

BTC ................................. British Tax Cases

C of T .............................. Commissioner of Taxes

Ch ................................... Law Reports, Chancery Division, from 1891 (England)

Ch D ............................... Law Reports, Chancery Division, 1875–1890(England)

CIR (NZ) ........................ Commissioner of Inland Revenue (New Zealand)

CJ .................................... Chief Justice

CLR ................................. Commonwealth Law Reports, from 1904

Commr of IR (NZ) ........ Commissioner of Inland Revenue (New Zealand)

CTBR (NS) ..................... Commonwealth Taxation Board of Review Decisions(New Series)

CTBR (OS) ..................... Commonwealth Taxation Board of Review Decisions(Old Series)

DFC of T ........................ Deputy Federal Commissioner of Taxation

Div .................................. Division

ER ................................... English Reports, 1220–1865

FC of T ........................... Federal Commissioner of Taxation

FCR ................................. Federal Court Reports

Fed Ct ............................. Federal Court

FLC ................................. Family Law Cases (CCH)

FLR ................................. Federal Law Reports

H&N ............................... Hurlstone & Norman, 1856–1862 (England)

H Ct ................................ High Court

HL ................................... House of Lords

IRC .................................. Inland Revenue Commissioners

IR Commrs .................... Inland Revenue Commissioners

J, JJ ................................... Justice, Justices

KB ................................... Law Reports, King’s Bench Division, from 1891(England)

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LJ Ch ............................... Law Journal Reports, Chancery (England)

LJQB ............................... Law Journal Reports, Queen’s Bench, 1831–1949(England)

LR Ex D .......................... Law Reports, Exchequer Division, 1866–1875(England)

MTG ............................... Australian Master Tax Guide

NSWLR .......................... New South Wales Law Reports

NZLR ............................. New Zealand Law Reports

O ..................................... Order

PC ................................... Privy Council

Pt ..................................... Part

QB ................................... Law Reports, Queen’s Bench Division, from 1875(England)

QBD ................................ Queen’s Bench Division

Qd R ............................... Queensland Reports, from 1958

r, rr .................................. rule, rules

s ....................................... section

SASR ............................... South Australian State Reports

SC .................................... Session Cases, from 1906 (Scotland)

Sch .................................. Schedule

SR (NSW) ....................... State Reports, New South Wales

STC ................................. Simon’s Tax Cases, from 1973

Sup Ct ............................ Supreme Court

TBRD .............................. Taxation Board of Review Decisions

TC ................................... Tax Cases, from 1875 (England)

TLR ................................. Times Law Reports, 1884–1952 (England)

US ................................... United States Supreme Court Reports

VLR ................................. Victorian Law Reports, from 1875

VR ................................... Victorian Reports, 1870–1872

WLR ............................... Weekly Law Reports, from 1953 (England)

WN (NSW) .................... Weekly Notes, from 1884 (New South Wales)

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Conversion Table

As a result of the Tax Law Improvement Project, several provisions in theIncome Tax Assessment Act 1936 (ITAA36) have been rewritten and enacted aspart of the Income Tax Assessment Act 1997 (ITAA97).

The Conversion Table shows, for the sections relevant to this book, theITAA36 (Old Law) section numbers which correspond to the ITAA97 (NewLaw) section numbers.

The rewrite has not resulted in a direct one-to-one correspondence betweenthe New Law and Old Law provisions. Some Old Law provisions have beenrewritten into a number of different New Law provisions; some have beenomitted, eg because they were regarded as redundant.

The New Law section references in the Conversion Table reflect the differentnumbering system adopted for ITAA97.

Old Law New Law Old Law New Law

Sec 63(3) ......................................................20-20; 20-35; 20-40

6(1) ................4-10; 4-15(2); 6-20; 70-10; 330-25; 330-240; 64A ........................................................................Omitted995-1(1) 65(1) ........................................................................26-35(1)17 ............................................................................4-1; 4-10 67 ................................................................................. 25-2519 ...................................................................6-5(4); 6-10(3) 68 ................................................................................. 25-2025(1) ...................6-5(1), (2), (3); 6-10(1), (2), (4), (5); 6-15 72(2) ......................................................20-20; 20-35; 20-4025A ............................................................................. 15-15 72A ......................................................................... 330-35026(f) ............................................................................. 15-20 78(1) .............................................................................. 30-126(g) ............................................................................ 15-10 78(3) ................................................................Subdiv 30-G26(j) ..............................15-30; 20-20; 20-35; 20-40; 70-115 78(4) ......30-15 item 1; Subdiv 30-B tables; 30-30; 30-35;28 ................................................................................. 70-35 30-60

31(1) ............................................................................ 70-45 78(5) ................................................................ 30-15 item 2

31(2) ............................................................................ 70-50 78(6) ................................................................ 30-15 item 4

31(3) .......................................................................Omitted 78(6A), (6B), (6C), (6D), (6E),(6F), (6G), (16A), (25A) ............................... Subdiv 30-D31(4), (5), (6) ............................................................... 70-7078(7) ................................................................ 30-15 item 536(1) ......................................................70-85; 70-90; 70-9578(8) ................................................................ 30-15 item 636(3) .........................................385-100(1); 385-105(1), (2)78(9), (10), (17) .............................................. 30-15 item 351(1) ................................................................................ 8-178(11) .......................................................................... 25-5051(2) ............................................................................ 70-2578(12) .........................................................30-15 items 1, 253 ................................................................................. 25-1080 ............................................................................Omitted54(1) ............................................................................ 42-1580A(1) ....165-10; 165-12; 165-13; 165-150(1); 165-155(1);57AF(1), (2) ............................................42-80(1), 42-80(2)165-160(1); 165-165

59(1) ................... 42-30; 42-185; 42-195(1), (2); 42-235(2);80A(2) ...................................................................165-12(5)42-245(1), (2)80A(3) .........................165-150(2); 165-155(2); 165-160(2)59(2) ................... 42-30; 42-185; 42-190(1), (2); 42-235(2);

42-240(1), (2) 80A(4) .....................................................................995-1(1)

59(3)(d) ....................................................42-205 items 4, 7 80A(5) ....................................................................... 165-20

59(6) .......................................................................... 42-215 80B(1), (4), (9), (10), (11) ......................................Omitted

60 ..........................................................42-65 item 1; 42-90 80B(3) ..................................................................... 165-205

61 ............................................ 42-20(2); 42-170(1); 42-175; 80B(5) ..................................................................... 165-18042-195(3); 42-245(3) 80B(6) ..................................................................... 165-18562(1) ......................42-25(1); 42-65 item 1; 42-175; 42-200 80B(7) ..................................................................... 165-19063(1), (4) ..................................................................... 25-35 80B(8) ..................................................................... 165-19563(2) .......................................................................Omitted

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Old Law New Law Old Law New Law

80E .....165-10; 165-13; 165-15(2), (3); 165-210(1), (2), (3) 160L(4)(d) ............................................................118-35(3)

80G(1) ........................................................170-30; 975-500 160L(5)(a) ................................................................. 118-25

80G(2)(a) ............................................................975-505(1) 160L(5)(c) .............................................................118-30(2)

80G(2)(b) ......................................975-150; 975-505(2), (3) 160L(5)(d) ............................................................118-35(2)

80G(3) .................................................................975-505(4) 160M ....................................................... Div 104; Div 109

80G(4) ..................................................................... 975-150 160M(1) ................................................104-10(2); 109-5(1)

80G(5) .................................................................975-100(1) 160M(1A) .............................................104-10(2); 109-5(1)

80G(5A) ..............................................................975-100(2) 160M(2) ................................................104-10(2); 109-5(1)

80G(5B) ..............................................................975-100(3) 160M(3)(a) ............................................... 104-55; 109-5(1)

80G(6) .............................170-5; 170-10; 170-20(1); 170-60 160M(3)(aa) .........................................104-65(1); 109-5(1)

80G(6)(a) .......................................170-10(1); 170-35(1)(a) 160M(3)(b) ...........................................................104-25(1)

80G(6)(b) ............................................170-10(1); 170-40(1) 160M(3)(c) ............................................................104-25(1)

80G(6)(ba) .......................................................170-35(1)(b) 160M(3)(d) ...........................................104-15(1); 109-5(2)

80G(6)(c) .......................................170-5(1), (5); 170-10(2) 160M(3A) ................................................. 104-60; 109-5(1)

80G(6)(d) ...................170-5(2), (4), (6); 170-30; 170-35(3) 160M(4) ................................................104-15(4); 109-5(2)

80G(6)(e) ..........................170-5(2), (4); 170-30; 170-35(3) 160M(4A) ............................................... 104-55(4); 112-20

80G(6)(f) ...............................................................170-15(2) 160M(4B) ................................................ 104-55(4); 112-20

80G(6)(g) ..............................................................170-15(1) 160M(5)(a), (aa) ..........................................118-50; 109-10

80G(6A) .................................................................... 170-50 160M(5)(b) ............................................................... 109-10

80G(7) ...................................................170-5(3); 170-45(2) 160M(5)(c) .............................................. 104-110; 109-5(2)

80G(8) ...................................................................170-45(3) 160M(6) .................................................. 102-25(3); 104-35

80G(9) ...................................................................170-35(2) 160M(6A) ............................................... 104-35; 116-30(2)

80G(9A) .................................................................... 195-10 160M(6BA) .........................................104-105(1); 109-5(1)

80G(9B) ...........................................................195-15(5)(b) 160M(6BB) ..................................104-105(2), (3); 109-5(1)

80G(10) .................................................170-5(3); 170-45(1) 160M(6C) ..............................................................Omitted

80G(11) ..................................................................... 170-55 160M(6D) ..............................................................Omitted

80G(12) .................................................................170-20(2) 160M(7) ...................................102-25(3); 104-155; 116-20

80G(13) ..................................................................Omitted 160M(7A) ..............................................................Omitted

80G(14) .................................................................170-40(2) 160M(7B) ...............................................................Omitted

80G(15) ..................................................................... 170-70 160U ....................................................... Div 104; Div 109

80G(16) ..................................................................... 170-65 160Z(1) ........................................ 102-20; 102-22; Div 104

80G(17) .................................................................170-25(1) 160Z(2) ...................................................................Div 104

80G(18) .................................................................170-25(2) 160ZA(4) .................................................................. 118-20

82(1) .............................................................................. 8-10 160ZD(1) .................................................................. 116-20

160A .......................................................... 108-5; 118-5(a) 160ZD(2) .................................................................. 116-30

160L(1) ...................................................................Div 104 160ZH(1) ........................................108-17; 108-30; 110-25

160L(2) .............................................136-5; 136-10; 136-15 160ZH(2) ........................................108-17; 108-30; 110-25

160L(3)(a) ................................................................. 118-25 160ZH(9) .................................................................. 112-20

160L(3)(c) .............................................................118-30(1) 160ZO(1) ................................................................102-5(1)

160L(3)(d) ............................................................118-35(1) 160ZS(1) ...........................................104-110(1); 116-20(2)

160L(4)(a) ................................................................. 118-25 160ZS(2) .............................................................104-110(3)

160L(4)(c) .............................................................118-30(3) 160ZZR ....................................................118-250; 118-255

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2007 ATC 4765; (2007) 162 FCR 189

FACTS & ARGUMENTS

ABB Australia was an Australian resident company that was wholly ownedand controlled by ABB Zurich, a Swiss company. On 30 May 1996, ABBAustralia declared a $49m dividend payable on 21 June 1996. On 3 June 1996,ABB Zurich entered into an oral agreement for consideration to assign its rightto the dividend to BZW (an English company). On 4 June 1996, BZW enteredinto an oral agreement for consideration to assign that right to BAL (anAustralian resident company). On 6 June 1996, BAL notified ABB Zurich of theassignment, requesting it to instruct ABB Australia to pay the dividend toBAL’s Sydney bank account. On 21 June 1996, the dividend was duly creditedto BAL’s account.

ABB Australia and ABB Zurich (the applicants) sought declarations under s39B of the Judiciary Act 1903 (Cth) that:

● ABB Zurich was not liable for withholding tax on the dividend under s128B(4) of the Income Tax Assessment Act 1936 (Cth), and

● ABB Australia was not required to deduct withholding tax from thedividend under s 221YL(1) of the Act.

‘‘Withholding tax’’ was defined in s 6(1) as ‘‘income tax payable in accordancewith s 128B’’. Section 128B(1) stated:

‘‘. . . this section applies to income that:

(a) is derived . . . by a non-resident; and

(b) consists of a dividend paid by a company that is a resident.’’

Section 128B(4) stated:

‘‘A person who derives income to which this section applies that consistsof a dividend is liable to pay income tax upon that income . . .’’

Section 221YL(1) imposed an obligation on a resident company to deductwithholding tax from dividends paid to a holder of a share in a residentcompany who is shown in the register of members as having an addressoutside Australia, or who authorised or directed the company to pay thedividends at a place outside Australia.

The applicants contended that a dividend could not be ‘‘derived’’ before itwas paid and could not be derived by a person to whom it was not paid. Itwas submitted that the only payment made by ABB Australia was to BAL,which was a resident company, and as a result there was no obligation towithhold any tax. The applicants argued that although ABB Zurich derived again from the sale of its right to receive the dividend, it did not derive‘‘income’’ that ‘‘consists of a dividend’’. It was contended that the directiongiven to ABB Australia by ABB Zurich, and the subsequent payment to BAL,occurred when ABB Zurich was a ‘‘bare trustee’’ of the right to receive thedividend and that it could not derive income to which it was not ‘‘beneficiallyentitled’’.

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The Commissioner argued that:

● when the dividend was declared (on 30 May 1996), ABB Zurich, being anon-resident company, derived income consisting of the dividend withthe consequence that s 128B(1)(a) was satisfied, and

● when the dividend was paid (on 21 June 1996), a dividend was ‘‘paid bya company that is a resident’’, with the consequence that s 128B(1)(b) wassatisfied.

According to the Commissioner, it was not necessary that payment be made tothe non-resident who derived the income consisting of the dividend. It wassubmitted that the words ‘‘derived’’ in s 128B(1)(a) and ‘‘derives’’ in s 128B(4)should not be read down as being limited to ‘‘payment’’. The Commissionercontended that ABB Zurich was an accruals basis taxpayer that derived thedividend when it was declared as a debt arose at such time.

Alternatively, the Commissioner submitted that the dividend was derivedbeneficially by ABB Zurich as the assignment was planned and executed toensure that ABB Zurich still retained the benefit of the dividend. Failing that,even if the dividend was not derived beneficially, it was derived by ABBZurich exclusively as a non-resident trustee, which falls within the scope of s128B(1).

The Commissioner also maintained that ABB Zurich could not, withoutassigning the underlying shares, avoid the consequences that it derived thedividend.

ISSUE

Was ABB Zurich liable for withholding tax on the dividend and was ABBAustralia required to deduct withholding tax from the dividend?

DECISION

Federal Court: Lindgren J.

1. ABB Zurich was liable for withholding tax on the dividend and ABBAustralia was required to deduct withholding tax from the dividend.

2. Generally, dividend income is derived when it is received. However, thisgeneral rule applies to passive shareholders who do not control thedeclaration of dividends and do not carry on a business declaring dividends.ABB Australia was wholly owned and controlled by ABB Zurich, whosebusiness involved managing investments in around 1,000 subsidiariesglobally. The decision to declare the dividend and defer payment was entirelythat of ABB Zurich, who was not a passive investor. The evidence indicatedthat ABB Zurich recognised dividends at the time of declaration and thissupported the conclusion that it derived income that consists of a dividendwhen ABB Australia declared the dividend on 30 May 1996. The dividend wasa debt owed by the taxpayer to ABB Zurich on that date.

3. Alternatively, even if the dividend was derived when it was paid, ABBZurich derived income consisting of a dividend on 21 June 1996 regardless ofthe fact that the payment was actually credited to BAL’s account. The actualtransfer of the dividend arose as a result of equitable assignments undertaken

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by ABB Zurich to BZW and by BZW to BAL. The taxpayer, in crediting BAL’saccount was only discharging its debt to ABB Zurich, who had directed thetaxpayer to pay BAL. Hence, the payment to BAL was also a payment to ABBZurich.

‘‘Essential to the notion of payment is the agreement of a creditor toaccept something as payment. If a creditor directs the debtor to pay athird party to whom the creditor has an obligation and the debtor doesso, the payment to the third party is payment to the creditor because thecreditor had consented to treat it as such . . .

Even a payment to the creditor’s bank account is a payment to a thirdparty, namely, the bank. The payment is made on the basis that theamount will be credited to the creditor’s bank account with the bank andwe have no difficulty saying that the debtor has ‘paid’ thecreditor.’’ (ATC pp 4793–4794)

4. From the time BZW paid ABB Zurich for the assignment of the right to thedividend, ABB Zurich held its legal right to be paid the dividend ‘‘on trust’’for BZW. Although it subsequently held the debt on trust for BAL, itcontinued to have contractual obligations to BZW.

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75 ATC 4057; (1975) 132 CLR 175

FACTS & ARGUMENTS

The taxpayer, under a former name, carried on a money-lending and hire-purchase financing business as a subsidiary of Master Butchers Ltd (MB). InDecember 1968 the taxpayer’s operations were suspended after inspectorswere appointed under companies legislation to investigate its affairs. In March1969, the taxpayer, MB and another subsidiary of MB entered into a scheme ofcompromise and arrangement with their creditors. The scheme required aspecial manager to conduct the affairs of the three companies, to collect debtsdue to them, to pay the debts into a special account and pay ‘‘dividends’’ tothe creditors whenever sufficient funds were available.

In April 1970, Australian Guarantee Corporation Ltd (AGC) purchased MB’sshares in the taxpayer whereupon the taxpayer resumed its finance businessunder its new name ‘‘AGC (Advances) Ltd’’. At the time of resuming itsbusiness, the taxpayer had not collected all book debts due in respect of loansand hire-purchase transactions entered into before the suspension of itsbusiness. In each of the 1970–1972 income years, the taxpayer wrote off someof these debts as bad debts and claimed deductions for those which related to(1) money lent and (2) ‘‘interest’’ in respect of hire-purchase accounts whichhad been brought to account as assessable income in prior years.

The taxpayer argued that it was entitled to the deductions for bad debtsrelating to the money lent under s 63(1)(b) of the Income Tax Assessment Act1936 (Cth) on the basis that it carried on a money-lending business and themoney was lent in the ordinary course of that business. The taxpayer alsocontended that it was entitled to the deductions for bad debts relating to the

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‘‘interest’’ in respect of hire-purchase accounts under s 63(1)(a) on the basisthat it had brought to account such interest as assessable income in priorincome years. In addition, the taxpayer claimed deductions under s 51 inrespect of so much of the bad debts as represented instalments of ‘‘principal’’due in respect of hire-purchase accounts. The taxpayer contended that theseamounts represented losses ‘‘incurred in gaining or producing the assessableincome’’ or ‘‘necessarily incurred carrying on a business for the purpose ofgaining or producing such income’’.

The claims under s 63 were disallowed by the Commissioner. According to theCommissioner, a deduction for bad debts could only be claimed under s 63 ifthe taxpayer had a beneficial interest in the bad debts. The Commissionerargued that the taxpayer had no such interest at the time it claimed thededuction as the creditor’s scheme extinguished the taxpayer’s beneficialownership in the debts. It was argued that the scheme operated as animmediate equitable assignment of those debts at the time it was entered intoand that this conclusion was supported by the Full High Court decision in GECrane Sales Pty Ltd v FC of T 71 ATC 4268.

The Commissioner also disallowed the taxpayer’s claims under s 51(1) on thebasis that no precise relationship existed between the writing off of the debtsand the gaining of assessable income in the income year in which thededuction was claimed. The Commissioner further contended that thetaxpayer’s claim for a deduction was precluded by the Full High Courtdecision in Amalgamated Zinc (De Bavay’s) Ltd v FC of T (1935) 54 CLR 295. Inthat case it was held that the words ‘‘the assessable income’’ in s 23(1)(a) of theIncome Tax Assessment Act 1922 (Cth) (s 51(1)’s predecessor) should be read asreferring to the assessable income of the year in which the expenditure wasincurred. However, Latham CJ qualified the narrow effect of thatinterpretation by stating that expenditure designed to produce income in apast or future year was deductible where it was ‘‘of such a character that, in acontinuing business, it must be met from time to time as a part of the processof gaining assessable income’’. The Commissioner argued that the break in theconduct of the taxpayer’s business during the period the scheme operatedmeant that it was not a ‘‘continuing business’’ at the time the debts werewritten off as bad.

ISSUES

Was the taxpayer entitled to deductions in the relevant income years under s63 (for the bad debts written off in respect of money lent and ‘‘interest’’ onhire-purchase accounts) and s 51 (for bad debts written off in respect ofinstalments of ‘‘principal’’ due on hire-purchase accounts)?

DECISION

Full High Court: Barwick CJ, Gibbs and Mason JJ.

1. Per Barwick CJ, Gibbs and Mason JJ: The taxpayer was entitled todeductions in the relevant income years under s 63 for the bad debts writtenoff in respect of money lent and ‘‘interest’’ on hire-purchase accounts. The

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creditors scheme, upon its proper construction, did not extinguish thetaxpayer’s beneficial interest in the debts. Per Barwick CJ (Mason Jconcurring):

‘‘the proper construction of the scheme is that for its period the specialmanager as agent of the [taxpayer] was to collect as much of the debtsdue to the [taxpayer] at the date of the commencement of the scheme ashe could, and that upon the expiry of the scheme his authority wouldcease, meantime the terms of the scheme determined how the moneyscollected were to be dealt with. The debts remained throughout in thelegal and equitable ownership of the [taxpayer] and on the expiry of thisscheme could be dealt with by the [taxpayer] as its own. In my opinion,there was no assignment whatever of the debts due to the [taxpayer]either to the special manager or to the group creditors or to MasterButchers Limited. That being so, nothing said by the Court in GE CraneSales Pty Ltd v FC of T has any bearing on the resolution of the presentquestion.’’ (ATC p 4063; CLR p 184)

2. Per Barwick CJ and Mason J (Gibbs J dissenting): The taxpayer was alsoentitled to deductions under s 51(1) for the bad debts written off in respect ofinstalments of ‘‘principal’’ due on hire-purchase accounts.

(a) Per Barwick CJ and Mason J: Section 51(1) does not require that to bedeductible, expenditures and losses must relate precisely to theassessable income which is returned for a year in which the expendituresare made or the losses are suffered. The reference to assessable income ineither of the limbs of s 51(1) should be read as a reference to theassessable income of the taxpayer generally without regard to divisioninto accounting periods.

(i) Per Barwick CJ:

‘‘In the application of [s 51(1)], it has not been possible to utilisethe definite article as to require the expenditure in question tohave produced or to have assisted to produce the assessableincome of the particular year of the expenditure. Nor can it beconstrued to require that the loss be similarly related to theassessable income of the particular year . . .’’ (ATC p 4064; CLR p185)

(ii) Per Mason J:

‘‘It is inconceivable that Parliament intended to confinedeductions to losses and outgoings incurred in connection withthe production of income in the year in question and to excludelosses and outgoings incurred in connection with the productionof income in preceding or succeeding years.’’ (ATC p 4071; CLR p197)

(b) Per Barwick CJ: The unpaid instalments of principal were deductibleunder s 51 as trading losses made in the gaining of assessable income.

‘‘the unpaid instalments of hire, clearly cannot be written off undersec 63 of the Act. But, in my opinion, they may be written off undersec 51. The [taxpayer] was in business of financing hire purchase

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transactions. Following a common commercial practice it took title tothe chattel, paying out the seller of it and then hiring it under hirepurchase to the ‘purchaser’. In this way the cost of the chattel becamepart of what may properly be described as circulating capital. Thepurchase of the chattel for the purpose of enabling the legalformalities of hire purchase to be observed was not the acquisition ofa capital asset. It was the acquisition of something much more akin totrading stock. In my opinion upon the failure to recover the amountpaid for the chattel there was a trading loss made in the gaining ofassessable income, that assessable income being the hiring chargesmade by the hire purchase agreement under which the chattel wasmade available to the hirer.’’ (ATC p 4063; CLR p 184)

(c) Per Barwick CJ: De Bavay’s case did not preclude the taxpayer’sentitlement to deductions in respect of instalments of principal. The mostthat De Bavay’s case stands for is that in relation to an expenditure, wherethere has been a break in the carrying on of the business yielding theassessable income of the particular year that business must in its naturebe substantially the same as that which was carried on at the earlierperiod of time. On the facts, the taxpayer was carrying on in the years itclaimed the losses the same business as it carried on before it entered intothe creditors’ scheme with the result that it was a continuing businesswithin the meaning of De Bavay’s case. Furthermore, De Bavay’s case doesnot apply to the deduction of losses. In order to be deductible, a losswhich flows from carrying on a business to gain assessable income neednot necessarily occur in a year when the company is actively carrying onthat business.

‘‘I do not regard the expression ‘continuing’ in such a temporal sensethat if there were any break in the carrying on of the business for somereason, the business could not be regarded relevantly ascontinuous.’’ (ATC p 4064; CLR p 186)

‘‘I do not regard [De Bavay’s case] as deciding that, even in the case ofexpenditure, the business in respect of which the expenditure is mademust be or has already been carried on without any substantial break.It seems to me that the most that could be deduced from theconstruction of the section applied in [De Bavay’s case] . . . in relation toan expenditure is that where there has been a break in the carrying onof the business yielding the assessable income of the particular yearthat business must in its nature be substantially the same as thatwhich was carried on at the earlier period of time.

But in any case . . . [De Bavay’s case] has nothing to say as to thededuction of losses. It is quite clear that a loss may not show up foryears after money has been ventured in a business . . . If a hirepurchase company decided to wind up and to discontinue thegranting of hire purchase agreements in a particular year, and in asubsequent year the company in liquidation found itself unable torecover instalments of hire on the goods in circumstances whichcaused it to write the amount off as a bad debt, it seems to me not

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merely unjust but unacceptable to hold that it could not deduct thatloss as a loss which it had incurred in the course of gaining assessableincome. The problem of deciding whether any and if so whatrelationship should exist between the assessable income of theparticular year and the loss, in my opinion, does not arise as it hasdone in relation to any expenditure.

It is clear enough . . . that in order to be a relevant loss it must be a lossof money which has been put out in order to gain assessable income.It may be . . . that if a long period of years separated the two eventsand meantime the company had started a different business orbecome an investment company as in [De Bavay’s case], it may benecessary if that decision is followed in such a case to say that therelationship between the two had ceased to be sufficiently proximate.It would suffice for my present purpose that I am not satisfied that, inorder to be deductible, the loss which flows from carrying on abusiness carried on to gain assessable income need necessarily occurin a year when the company is actively carrying on that business.

. . . the scheme was entered into . . . in order to enable the companiesto extricate themselves from their financial embarrassment so as to beable, if they so chose, to continue to carry on the business which hadcaused them the financial embarrassment. The break in years wasrelatively short. The fact that the [taxpayer] changed its name . . . canhave no possible bearing . . . upon the nature or continuing nature ofthe business which the [taxpayer] was carrying on: nor does it matter. . . that the address from which it conducted its affairs was changed.The nature of the [taxpayer’s] business, both before and at theconclusion of the scheme when the [taxpayer] resumed its activities,was that of a financier, lending directly to borrowers and alsoservicing hire purchase arrangements. There was no change in thenature of the business at all . . . it was the same business which wascarried on after a break, a break which . . . was not for the purpose ofabandoning the business but rather to enable its continuance.’’ (ATCpp 4065–4066; CLR pp 187–189)

(d) Per Mason J: The court is entitled to reach its own conclusion on theconstruction of s 51(1) unfettered by what was said in De Bavay’s case.The unpaid instalments of principal were deductible under the secondlimb of s 51(1) as the occasion for the loss was found in a transactionentered into in the carrying on of the business for the purpose ofproducing assessable income:

‘‘It may be argued that if the taxpayer has ceased to carry on aparticular business, a loss subsequently sustained in relation to thatbusiness cannot be described accurately as a loss incurred in carryingon that business, or at any rate one incurred in carrying it on for thepurpose of gaining or producing assessable income. But thesoundness of the argument depends on what is meant by ‘incurred’. Aloss constituted by the writing off of a bad debt is no doubt incurred,in the sense that it is sustained, at the time when the debt is written

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off, and that may occur in a given case after the taxpayer has ceased tocarry on as a going concern the business in which the debt wascreated. Yet even in such a case it may be correct to speak of the lossas having been incurred in the carrying on of the business. This isbecause the occasion for the loss is to be found in a transaction enteredinto in the carrying on of the business for the purpose of producingassessable income, that is, in the agreement by which the debt wascreated. Because the loss had its origin in such a transaction the lossmay be said to be one which was incurred in the carrying on of thebusiness for the purpose of producing assessable income,notwithstanding that its true character as a loss is not finallyascertained until the debt is written off.’’ (ATC pp 4071–4072; CLR pp197–198)

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92 ATC 4239

FACTS & ARGUMENTS

The taxpayer was a wholly owned subsidiary of AGC (Insurances) Ltd whichcarried on an insurance business and which itself was a wholly ownedsubsidiary of Australian Guarantee Corporation Ltd (AGC). The affairs of thetaxpayer, AGC (Insurances) and another subsidiary of AGC wereadministered as a single unit known as the ‘‘AGC Insurance Division’’ of theAGC group of companies.

Over a considerable period spanning some 15 years, AGC (Insurances)advanced substantial sums to the taxpayer (interest free and repayable ondemand) which the taxpayer invested in a portfolio of shares in listed publiccompanies. The share portfolio was managed by Westpac InvestmentManagement Pty Ltd. As at 30 September 1986, the portfolio included sharesin some 51 companies and had a market value of $85,909,940. In mid-September 1987, shortly before the stock market slump the following October,the taxpayer decided to commence selling the portfolio and reinvest theproceeds in fixed interest securities. In the 12 months to 30 September 1987,the taxpayer accordingly sold its holdings in 33 companies (representingabout one-half of the value of the portfolio) and realised a profit of$45,068,073.

The Commissioner assessed the taxpayer on this profit under s 25(1) of theIncome Tax Assessment Act 1936 (Cth) for the year of income ending 30September 1987 on the basis that it was income according to ordinaryconcepts. According to the Commissioner, the taxpayer was carrying on abusiness which was integral to the insurance business of its parent company,and in the course of its business the portfolio of shares was acquired for thepurpose of making a profit.

At first instance before the Federal Court, Hill J held that the profit wasassessable under s 25(1) on the basis that it was income according to ordinaryconcepts. According to Hill J, the decisions in London Australia Investment CoLtd v FC of T 77 ATC 4398 and FC of T v Myer Emporium Ltd 87 ATC 4363 stoodfor the proposition that profits made on the realisation of investments

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constituted income according to ordinary concepts if the investments wereacquired as part of a business and at the time of acquisition there was anintention or purpose that they be realised at a profit. Hill J held that thetaxpayer was carrying on a business which was integral to the insurancebusiness of its parent, AGC (Insurances) Ltd, and in the course of thatbusiness the taxpayer acquired a portfolio of shares for the purpose of makinga profit. Hill J also found that the fact that the shares were to be treated aslong-term investments was not inconsistent with the conclusion that theshares were acquired with a profit-making purpose and that they wereacquired with the knowledge that their sale may be required to provide fundsfor the purposes of the insurance business of AGC (Insurances) Ltd, ‘‘albeitnot on a day to day basis, but only perhaps in the event of a catastrophe or arunning down of particular insurance business’’.

Before the Full Federal Court, the taxpayer disputed Hill J’s finding that it wascarrying on a business that was integral to its parent’s insurance business andhis Honour’s conclusion that in the course of this business it acquired theportfolio of shares for the purpose of making a profit. The taxpayer arguedthat Hill J should have held that it was engaged in a business of investment, inwhich the realisation of surpluses on disposal was ‘‘no more than a knownpossibility, rather than its object’’. The taxpayer maintained that its purposewas to produce a steady and growing dividend income and that as aconsequence, the profits were on capital, and not on revenue, account.

ISSUE

Were the profits made by the taxpayer assessable under s 25(1) as incomeaccording to ordinary concepts?

DECISION

Full Federal Court: Beaumont, Gummow and French JJ.

1. The profits realised by the taxpayer were on capital account and thereforewere not assessable under s 25(1).

2. At the time of acquisition, the shares in the taxpayer’s portfolio were notacquired with an intention that they be realised subsequently at a profit. Thefacts of the present case were distinguishable from the usual circumstances ofan insurance company or a bank, where the need to buy and sell securities ona regular basis, in order to maintain liquidity, justifies the conclusion that suchsteps are normal steps in carrying on a banking or insurance business, withthe consequence that the profits so earned are regarded as income. Theevidence suggested that there was no need for the taxpayer to buy the sharesin order to maintain the liquidity of AGC (Insurances).

‘‘. . . it was not part of the corporate scheme that the [taxpayer] buyequities in order to maintain liquidity for the insurance operations of theAGC Group. The memorandum and the other evidence, documentaryand oral . . . demonstrate that it was at all times intended that the[taxpayer] invest long-term. Its subsequent conduct was consistent withthis intention . . . 26 of the equities acquired were held for a periodexceeding 15 years, 20 for between 10 and 15 years and a further 14 for

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between 5 and 10 years. This pattern of activity is inconsistent with anobjective or purpose of acquiring the shares in order to provide liquidfunds for the Insurance Division.

It may be accepted, as Hill J found, that the [taxpayer] was theinvestment vehicle for the Insurances Division. But it does notnecessarily follow that the investments made by the [taxpayer] were notmade on a long-term basis. The evidence demonstrates that, in fact, thesecurities now in question were acquired with a view to their long-termcapital growth.

The evidence also indicates that, insofar as liquid funds were requiredfor the purposes of the insurance operations, they were found in sourcesother than the [taxpayer’s] share portfolio . . . the documentary and otherevidence, taken as whole, indicates that the Westpac Management wasinstructed to achieve, and did achieve, the objective of long-term capitalgrowth in the [taxpayer’s] portfolio.’’ (ATC pp 4252–4253)

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82 ATC 4246; (1982) 150 CLR 510

FACTS & ARGUMENTS

The taxpayer was a finance company which provided consumer credit in theform of personal loans, hire purchase transactions and consumer mortgages.In order to carry on its business the taxpayer raised funds by borrowingrelatively large sums of money in both Australia and the United States.

In relation to its overseas borrowings, as a result of exchange rate fluctuationsbetween the Australian dollar and the United States dollar, the taxpayer madeboth exchange gains and exchange losses when it repaid the amountsborrowed. In the income years ending 30 June 1972, 30 June 1973 and 30 June1974 the taxpayer made exchange gains of $175,084, $1,579,020 and $298,501respectively. In the income years ending 30 June 1975 and 30 June 1976 thetaxpayer made both exchange gains and losses, producing a net gain of$243,038 in the year ending 30 June 1975 and a net loss of $126,412 in the yearending 30 June 1976. In the income year ending 30 June 1977 the taxpayermade a net loss of $2,799,903.

The Commissioner assessed the taxpayer under s 25(1) of the Income TaxAssessment Act 1936 (Cth) on its exchange gains but refused any deductionunder s 51(1) for the exchange losses. The Commissioner, relying on thedecision in Commercial & General Acceptance Ltd v FC of T 77 ATC 4375,contended that the exchange losses were of a non-deductible capital nature.

The taxpayer argued that the exchange gains did not constitute assessableincome and that the exchange losses were deductible. The taxpayer sought todistinguish the decision in Commercial & General Acceptance Ltd v FC of T on thebasis that in that case the purpose of the foreign borrowings was to improvethe finance company’s liquidity problems and accordingly strengthen itscapital structure whereas in this case the purpose of the borrowings was to on-lend the borrowed funds in the ordinary course of the taxpayer’s business.

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